UK Election Analysis: Is the Labour Manifesto Good for Growth?

1. On General Narrative: The Growth Commission appreciates the importance and language ascribed to wealth creation and growth in the Labour manifesto.
2. On AI and Data Centres: The manifesto recognises the importance of being an AI leader (not just a leader in AI regulation), and the critical importance of ensuring planning permission for data centres is sped up. Which we have suggested would be of economic benefit.
3. On Additional Civil Service Functions: On the proposal for a new Regulatory Innovation Office, this could be a useful policy development especially if it leads to evaluation of regulations on the basis of impact on innovation and competition and measured in GDP per capita. However further costs added to public sector to introduce such a function may have detrimental affects. In our Spring Growth Budget we outlined the need to reduce public sector spending in order to grow the economy.
4. On Increasing Minimum Wage: Increases to the National Minimum Wage above levels it is at now would be damaging to GDP per capita. The Growth Commission has written extensively on this topic and has suggested in our Budgets, that the national minimum wage should be frozen at its current level before going on to reduce the minimum amount a worker can be paid. Co-chairman Shanker Singham suggested that a move to 66% of median wage, which is far higher than any other OECD country by next year and would be a significant drag on the economy and suggested freezing and targeting it down to 61%. Reasons for this is because researched showed that when minimum wages were high it prevented employers from providing more jobs and destroyed small otherwise flourishing businesses. The Growth Commission calculated that about 900,000 jobs are currently being made uncompetitive by the existence of the minimum wage. Read more here to find out the economic impact on increasing the minimum wage [Link]
5. On Business: labour pushes for a competition and regulatory environment that supports innovation and growth which is laudable, but the devil will be in the detail.
6. On Energy: Labour appears to recognise the need to keep oil and gas in the energy mix, and the importance of nuclear, including both large developments and SMRs. Increasing energy generation was an important Growth Commission recommendation. But there are restrictions on new oil fields, coal and fracking that may compromise the UK’s ability to generate enough energy and increase competition to meaningfully lower its cost.
7. On State-owned Energy: The Growth Commission is concerned by the proposed creation of state owned energy firm, Great British Energy which would be a significant state intervention in the energy market. It would be very important to understand how Great British Energy impacts the energy market of private firms, as there is a danger that state owned firms tend to crowd out the private sector. Potentially increasing costs to the consumer. The resultant distortions can lower GDP per capita.
8. On the Energy Grid: Consistent with Growth Commission recommendations, the Labour manifesto highlights the need to make grid interconnections much faster, and to ensure more competition in energy regulation.
9. On Carbon Taxes: Labour supports the introduction of a Carbon Border Adjustment Mechanism.  The Growth Commission has submitted to the CBAM consultation an estimate of the GDP per capita damage that would be incurred by following the EU CBAM. There are other ways including tariffication of distortions which could solve the challenge of carbon leakage.
10. On UK-EU TCA: Proposals for mutual recognition and reduction of trade barriers are important tools to reduce distortions and thus increase GDP per capita. But as the GC has noted domestic regulatory reform is the biggest mover of GDP per capita, and any veterinary agreement negotiated by the UK with the EU would need to ensure regulatory autonomy still is applicable. That is possible if the UK seeks a NZ style and not a Swiss style veterinary agreement.
11. On Trade Policy: Labour will have to be careful how much of its trade policy approach it puts into a review and document. Trade negotiators need maximum flexibility to be able to conclude deals and putting too much of the trade policy objectives of a country into a public process and public document could be used by trading partners in a way that stymies UK trade negotiators ability to do concludes deals.
12. On CPTPP: Otherwise, Labour supports the CPTPP accession of the UK and will seek a mix of FTAs and mutual recognition agreements, all of which will contribute to GDP per capita gains. Like the Conservatives they also seek to complete an FTA with India and a deeper trade partnership with the Gulf Cooperation Council. All of these are positive steps which will improve the UK’s trade pillar score in the ACMD model, and continue to generate GDP per capita gains.
13. On Balancing the Books: Labour is basing its spending on a static calculation of monies to be raised from Windfall Profits tax which does not account for dynamic effects that could make the revenue raised much smaller.  Similarly, the revenue projected to be raised from tax rises (such as VAT on private schools) may in fact be much smaller because of disincentivising impacts that would be evident from a dynamic analysis. Much of the wealth creating effect of the manifesto does seem to be reliant on revenue raised in this way, so there is certainly a risk that the wealth creating impact may not be realised.
14. On the Absence of China: The Labour manifestos does not talk extensively about the impact of China on international trade and UK producers (other than in the CBAM context) which is surprising. It is inevitable that China will be high on the trade agenda, but one would assume it would be covered in Labour’s trade policy high level paper which is referred to in the manifesto.
15. On Regulatory Reform Generally: There are two principle areas of division. The first is labour market policy where the Labour party’s policy is much more inflexible and will impact GDP per capita negatively because labour market flexibility is one of the big movers in the ACMD model’s domestic competition pillar/field. The Labour freedom score is 25% of the pillar and so a ne reduction will impact GDP per capita and approximately 3% GDP per capita impact is labour market policies alone.  The second area is related and is dynamic alignment of goods regulation which the Conservative manifesto categorically rules out, but which Rachel Reeves’ recent interview in the Times suggests will be the Labour approach. Regulatory reform is precisely the area where most gains can be made, and the area where the current government can be faulted is that it did not do enough to realise those gains.  From what we can see currently Regulatory Reform is not high on the agenda, which as we have stated in our budgets, is somewhat inconsistent with their desire to create wealth.